Research on the governance of new ventures has traditionally focused on mitigating incentive misalignment between founders and investors through boards’ incentive design, monitoring, and control. In this paper, we identify a distinct governance problem: managing cognitive misalignment — systematic differences in beliefs about the opportunity's underlying value. Cognitive misalignment arises from the inherent challenges of learning in the face of uncertainty. As founders and boards gather information, their assessments of an opportunity’s merits may diverge because they interpret evidence differently and bring distinct cognitive biases to learning and decision-making. We consider a setting in which a founder identifies an opportunity with uncertain prospects that requires investor support to pursue, and the investor takes a board seat. The board’s governance challenge is not to discipline behavior, but to make high-quality decisions despite potential cognitive misalignment. It does so by allocating its limited attention between independently evaluating the opportunity and learning about the founder’s confidence bias, which shapes how the board weights founder input when exercising its decision rights. We explore these dynamics using a computational model. Our analysis identifies conditions under which venture investors are better served by focusing more attention on understanding founders than independently evaluating opportunities, and shows how optimal governance depends on the prevalence of overconfidence in the founder population. We find that, conditional on effective cognitive governance, venture investors create more value when working with moderately overconfident founders, helping explain why venture investing often thrives in optimistic, failure-tolerant environments.

Keywords: cognitive misalignment, board governance, cognitive bias, organizational learning